What Is Customer Loyalty: 10 Benefits for Your Brand

May 20, 2020

Can you count on your customers to remain loyal to your brand—no matter what?

A lot of companies are discovering how strong their customer relationships really are, especially as consumers continue to feel the squeeze of a tight economy. Recent spikes in unemployment means many shoppers have had to limit, cancel or redirect their spending. These changes have been dramatic and record-breaking.

USA Today reports about 12 million United States workers started receiving unemployment as of April 4—the highest level recorded since records began in 1967 (exceeding the next-highest level of 7% from 1975).

By the end of April, consumer spending had nose-dived by 7.5%. According to AP News, this is the steepest monthly plunge since 1959 when records first started being kept (the next-closest drop is a decline of 2.1% in 1987).

If your company is like most, you continue to adjust to these massive shifts in consumer buying habits. At Formation, we’re focused on helping companies prepare for the economic rebound. Your customers will be critical to keeping revenue flowing. That’s why a key area of your marketing focus should be increasing and enhancing customer loyalty.

In an environment where shoppers are rethinking how, where and when they spend their money, brand loyalty offers a competitive edge. When customers trust a brand, they’re more likely to stick with it, in good times and bad. Customer loyalty is a measure of how strong your customer relationships truly are. And there are things you can do now to enhance the loyalty bond.

What is Customer Loyalty?

Customer loyalty is when a consumer repeatedly returns to a brand because they trust the brand and the quality of their experience. These customers are happy with their brand interactions, and, according to Accenture, 57% of consumers spend more with brands they are loyal to.

Your most loyal customers will help you increase revenue and grow your business. It costs much less to retain existing customers than find new ones—but if customer acquisition is your goal, loyal customers can also help you attract new customers through referrals and word-of-mouth (a much lower-cost way to acquire new customers than investing in lead-generation efforts).

Here are 10 customer loyalty benefits critical to your brand.

The Importance of Customer Loyalty: Top 10 Benefits

#1 Customer Acquisition and Retention

For some time now, customers have continued to lose trust in brands and companies. Experts point to the rise of misinformation, customer data breaches and the flood of branded content and ads as explanations for this dip in trust. In a recent HubSpot Trust Survey, 55% of respondents said they do not trust the brands they buy from as much as they used to.

This lack of trust and the high costs of marketing means that retaining these customers is critical to your success. In fact 89% of companies see customer experience as the key driver to retention and loyalty.

#2 Repeat Business

Since it costs five times more to acquire new customers, retention is important. And we know that existing customers affect the bottom line. The probability of selling to your customers is 60-70% compared to five-20% with a new prospect. Also, existing customers are 50% more likely to try new products and will spend 31% more than new customers.

#3 Upselling and Cross-selling

Your customers are your growth opportunities. They’re already familiar with your brand and thus represent ideal upselling and cross-selling opportunities. One way to do this is with a loyalty program. You could introduce new products as part of a multi-step offer (as part of a “customer loyalty loop”). Powered by machine learning (ML) algorithms, these offers would recognize your customer’s individual buying habits and motivations, and then suggest new products they’re likely to find appealing.

Customers would then be rewarded for each step they achieve and receive a larger incentive at the end of the goal. Customers would also have the relevance they crave and then be introduced to your new products, which aligns both your customer’s goals with business goals.

#4 Reduce Costs

Marketing and sales costs are rising. Trends in social media and search are making it more difficult for brands to reach new audiences. Social media has become a pay-for-play space, where algorithms prioritize user content over business content. And 71% of people do not trust sponsored social media ads, while 65% do not trust ads in general.

Also, Google’s new search updates have made it difficult for brands to market their websites and products to acquire new customers without a large financial investment, and 52% of product searches begin on Amazon. Meanwhile, organic search costs have increased by almost 50% in the last five years.

#5 Improve Brand Image

Your brand image is how consumers perceive your products and services—it’s one of your most valuable assets. More than just logo and online presence, brand image encompasses all the touchpoints you have with individual consumers, including customer service, social media and company culture.

Building your brand image can be costly, but if you’ve built trust and customer loyalty, your customers are more likely to share their positive experiences.

#6 Honest and Quality Feedback

Loyal customers can provide quality feedback in terms of online reviews, customer service surveys and customer comments. They understand your brand and its offerings, and they’re one of the best ways to gather honest responses to improve and learn how you’re doing. Additionally, you can use this feedback to:

Measure the success of your customer experience

Launch new products

Forecast better business decisions

Reduce customer churn

#7 Increase Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV) helps you estimate the net profit you could potentially gain over a lifetime of interactions with a given customer. LTV isn't anything new, but, as Forrester wrote in a recent report, "it’s gaining traction as customer insights professionals seek to maximize efficiency, demonstrate economic value and leverage advances in data management for strategic purposes like customer experience improvement."

As brands move to a more customer-centric approach and focus on loyalty, they will also increase LTV and customer retention by engaging with customers and giving them more reasons to continue buying from your company. Over time, loyal customers are estimated to be worth 10x more than their first purchase.

#8 Create Brand Advocates

By focusing on loyalty, you’ll turn your customers into brand advocates. Brand advocates are valuable to your company. They spread positive word-of-mouth messaging to their entire social network, which can drive four times better results than paid media. This is critical because 92% of consumers trust online recommendations from friends and family compared to other branded content (remember, too, 71% of people do not trust sponsored social media ads). You’ll also improve your brand image, have access to user generated content and reach a wider audience. Brands can increase their brand advocates through customer loyalty programs, building communities and brand ambassador programs.

#9 Gather Valuable Customer Data

Customer loyalty programs are a great way to collect customer data for personalized experiences. According to our recent webinar with Forrester, 80% of American adults are comfortable with sharing some kind of personal information about themselves in order to have a personalized shopping experience.

Brands that collect the customer data and leverage artificial intelligence (AI) and machine learning (ML) can analyze how customers interact with them. These insights can help brands understand customer motivations and what they find relevant to their shopping experience. It helps brands build on basic segmentation and offer true 1:1 personalization that speaks to a customer on an individual level, which will improve engagement and customer LTV.

#10 Stand Out From Competitors

In a tight economy, competition gets more fierce to win a customer’s attention and business. Look at the brands with the strongest loyalty: Apple, Sephora, Amazon, etc. Each has a loyal customer base that willingly pays more because they believe these companies’ products are superior and they offer better customer experiences.

How to Keep Customers Loyal

A customer loyalty program is an ideal way to improve your brand image, increase customer LTV and acquire new customers at low cost. However, as you try to recognize, reward and delight customers, it's also important for brands to create relevant loyalty experiences.

Any company can offer one-size-fits-all coupons and points—in fact, these programs are so basic and ubiquitous they hardly offer any competitive advantage at all when it comes to building greater customer loyalty. Here are some of the cutting-edge ways top companies are creating loyalty among customers.

Leverage AI and ML to create offers that speak to individual motivations (even for large volumes of customers)

Build on segmentation and use 1:1 personalized offers

Partner with other brands to increase reward selections

How Do Customer Loyalty Programs Work?

To build a great customer loyalty program, map it to the customer journey. This helps you create a loyalty loop, within which brand interactions continue to re-engage customers, leading them to choose your brand time and again. At the heart of the program, you must create relevant experiences and offer something your customers deem valuable; otherwise, you won’t get optimal loyalty.

Loyalty programs are more than just points and coupons. Here are examples of the world’s best customer loyalty programs.

Customer loyalty programs examples

Amazon Prime

Joining Amazon Prime is entering the exclusive club of super fast, two-day shipping to millions of diverse products without a minimum purchase. Amazon has truly changed the way we shop and revolutionized eCommerce.

As a Prime member, customers get discounts to Whole Foods, gain access to free movies and TV shows and enjoy some of the best online return policies. Also, they offer some of the best personalization to their customers.

Uber Rewards

Uber Rewards allows customers to earn points from rides and Uber Eats, and it’s a simple program to join from the Uber app. This tiered system offers members priority support, flexible cancellations and upgrades. The rewards are easy to use, automatic and the program encourages brand loyalty.

Starbucks Rewards

Starbucks Rewards has become the gold standard of increasing customer loyalty by offering highly personalized experiences and offers to individual customers at scale. By leveraging AI and ML algorithms, Starbucks analyzes customer data and sends out multi-step offers that are individualized for each rewards member.. These 1:1 personalized offers provide value and relevance to millions of individual customers, based on each customer’s unique preferences and desires.

Learn more about the importance of customer loyalty and what customer loyalty is in these related articles:

Today’s marketing is about retaining your best customers. Learn more about the seven ways to increase customer loyalty, such as using 1:1 personalization, giving a choice for rewards and tips on how to revamp your program.

One of the most important metrics for brands is customer lifetime value (LTV). This highlights the strength of your customer experience and increased revenue, and shows how 1:1 personalization can provide the foundation for growing customer LTV.